MatfuII 1996 Reading List
Part II: Dynamic Optimization
Lecturer: John.Hassler@iies.su.se
IIES, Stockholm University
October, 1996
Literature
The main book for this part is Chiang and is
recommended to buy for everyone. This book is very similar to
Kamien and Schwartz which was used previous years and is
acceptable as an alternative. Chiang contains a lot of examples
which you should study on your own. Your are supposed to read
also the chapters which we do not cover in class. We will also
use the first chapter from Sargent which is a useful book at
least for those who want to continue with macro and/or finance.
You should also look at my lecture notes.
You have to order Chiang your self, for example from any of
the internet
bookshops. The Internet Bookshop charge £21.95 plus £3.50
in shipping and handling.
The article by Bentolila and Bertola is a good
introduction to irreversible investments and an application of
stochastic dynamic programming. Harrison is the source if you
want to go further into dynamic optimization with continuous
stochastic processes (Brownian motion). A good, quite extensive
but not very difficult introduction to stochastic dynamic
programming can be found in Ross. This book is useful also for
micro. A more rigorous treatment of dynamic optimization in continuous time
can be found in Seierstad and Sydsæter. Gerald and Weatley is a
book in applied numerical analysis in general and Cooley has some
chapters on how to solve numerical real business cycle models.
Recommended for everyone
- Chiang, Alpha, (1992), Elements of
Dynamic Optimization, McGraw-Hill.
- Sargent, Tomas (1987), Dynamic
Macroeconomic Theory, (Chapter 1), Harvard University Press,
Cambridge, Massachusetts.
- Class notes by John Hassler
Recommended for interested
- Bentolila, S., and G. Bertola, (1990),
"Firing costs and Labor Demand: How bad is Eurosclerosis?," Review
of Economic Studies, Vol. 57 (3), No. 191 (July).
- Cooley, Thomas, (1995), Frontiers of
Business Cycle Reseach, Princeton University
Press.
- Gerald, Curtis, and Patric Wheatley,
(1989), Applied Numerical Analysis, (4
ed.), Addison-Wesley
- Harrison, J. M., Brownian Motion and
Stochastic Flow Systems, Robert E. Krieger Publish
- Kamien, Morton, and Nancy Schwartz,
(1981), Dynamic Optimization: The Calculus of Variation
and Optimal Control in Economics and Management,
Elsevier Science Publishing Co. Inc.
- Ross, Sheldon, (1983), Introduction to
Stochastic Dynamic Programming, Academic Press.
- Seierstad, Atle, and Knut Sydsæter,
(1987), Optimal Control Theory with Economic Applications,
Elsevier Science Publishers.
Course Outline
Introduction to Dynamic Optimization
- (1/2 lect. ) Readings: Chiang, Chapter 1.
Dynamic Optimization in Continuous time
- Calculus of Variation (2 lect.) Readings:
Chiang, Chapter 2, 3, 5.
- Optimal Control (2 lect.) Readings:
Chiang, Chapter 7, 8, 9.
Dynamic Optimization in Discrete time
- Non-Stochastic Dynamic Programming (1
lect.) Readings: Sargent, Section 1.1-1.4.
- Stochastic Dynamic Programming (1/2 lect.)
Readings: Sargent, Section 1.6-1.7.
Some Numerical Methods
- Solving differential equations Numerically
(1/3 lect.) Readings: Lecture Notes
- Newton Raphson (1/3 lect.) Readings:
Lecture Notes
- Iterating on the Bellman Equation (1/3
lect.) Readings: Lecture Notes